In February, 1986, American International Bank opened a branch in an Alhambra office abandoned as unprofitable by Bank of America. The new branch was in the black in two months, and its $40 million in deposits are now more than half of the bank's total.

How could a small, fairly new bank make a go of it in the very building where the state's biggest bank failed?

Part of the answer lies in scale. The Alhambra office was small among Bank of America's nearly 900 branches, and its deposits were relatively insignificant as the bank tried to deal with greater financial problems.

For American International, which had been battling for every depositor dollar since being founded less than a decade ago by an immigrant whose first job was with BofA, the spot had the potential to be extremely significant.

A more significant element of the answer, however, is how the example demonstrates the ability of small Asian-American financial institutions to tap Southern California's exploding Asian population, which is better educated, more skilled and wealthier than any group of immigrants in the nation's history.

These are not the big Los Angeles-based banks owned by foreign entities, such as Mitsubishi Bank of California and Tokai Bank of California. Those banks have special dealings with major Asian corporate clients and serve as conduits for the huge sums flowing between California and Japan, but they attract a broad range of customers at the personal banking level.

The small independent institutions--owned chiefly by Asian-Americans--cater almost exclusively to other Asians in such immigrant population centers as Alhambra, Monterey Park, Garden Grove, Cerritos and the Chinatown section of Los Angeles.

They target specific markets and avoid the high operating costs that often make small branches unprofitable for big banks. They stress polite, personal service for immigrant customers who might feel alienated at a bigger institution. And, by concentrating on the community they know, they avoid widespread problems with bad loans.

The result is that their numbers have increased and many have reached levels of enviable profitability in a few short years. Indeed, the number of banks and savings and loan firms in the Los Angeles area owned and operated by Asian-Americans has risen to 27 today since the first was founded in 1962.

And, at a time when the largest banks have been closing branches and stressing automated teller machines, their Asian counterparts have been expanding, often taking over the precise locations vacated by the big banks.

"By and large, Asian-owned banks that cater to Asian communities have done very well and seem to ride the crest with the clients they serve," said Salvatore Serrantino, president of California Research Corp., a Santa Monica bank consulting firm involved in helping start many Asian-American banks.

The largest among them in Los Angeles is also the oldest, 25-year-old Cathay Bank, with assets of $386 million and a Chinatown headquarters. About 90% of its customers are Chinese-Americans and 80% of its stock is owned by Chinese-Americans, Miranda So, assistant to the bank president, said.

The largest Asian-owned thrift in Los Angeles was East-West Federal Savings Bank, with assets of $350 million, which recently entered into an agreement to be purchased by Talley Industries of Phoenix, a manufacturing company, at a premium price, reflecting its consistent profitability. The prospective new owners instructed East-West's president, Kellogg Chan, to continue catering to the Chinese community.

"As a whole, Chinese-American and other Asian-American institutions have been better shops than other financial institutions," said Chan. "I believe part of the reason is that there is more of a moral obligation among our customers to honor one's debts than anywhere else."

Stick to Formula

Asians also are big savers and tend to bring nest eggs of $50,000 or more with them when they come to this country. That means that institutions catering to their financial needs get big deposits and that customers tend to pony up bigger down payments.

"The ones (institutions) that have gotten into trouble are the ones that have gone outside their target areas and made loans outside of our community," Chan said.

Alongside the big institutions, such as Cathay and East-West, are many smaller Asian-American banks and savings and loans that have stuck to the formula of concentrating on their own communities.

These institutions tend to be more strongly capitalized, produce better returns on equity and assets, and be burdened by fewer problem loans than most of their non-Asian counterparts of the same size and age, according to figures compiled by Serrantino.

One example is American International Bank, which was formed in 1978 to cater to Middle Eastern immigrants but began to grow and become profitable after bringing in a group of Chinese-American investors and targeting Asian customers in 1984.